Pension funds are not there for the delusion of the day

The desire for Dutch pension funds to invest heavily in all kinds of social issues is understandable, but unwise, writes Menno Snel, partner at Hague Corporate Affairs. Pension funds invest many hundreds of billions of euros to provide millions of participants with a good income now and in the future, and they should continue to do so.

The role of pension funds

What is the role of the Dutch government in investing in infrastructure, innovation, and sustainability? In recent years, the government has introduced several investment vehicles aimed at supporting the “economy of the future.” These include the Growth Fund and Invest NL. However, not all of these funds are long-term solutions.

Public investment in innovation and new infrastructure raises many questions. Should the government become a shareholder in certain companies? Could there be more “blended finance,” where public and private funds are combined? Is the government capable of making the right investment decisions?

As a former board member of pension fund ABP, I know that in such debates, people often focus on pension funds. Together, these funds manage assets worth around 1,700 billion euros. Surely, with such a vast amount, they could invest in housing projects and make the Dutch economy more sustainable? On the side, there is always the question of why organizations like ABP, PFZW, and PMT invest so heavily in foreign shares.

First of all, pension funds do not prefer Swiss housing projects over Dutch ones. The main issue is that many of the proposed projects are either too small or too risky for the pension sector.

Investing in social issues

The driving force for pension funds is fiduciary duty: they must provide the best possible pension for all participants. If a certain group wants to walk in the woods in sandals and demands that funds only invest in green projects, that is their choice. However, pension trustees cannot base their investment policy on that.

The delusion of the day is a fickle adviser. One group may argue for sustainable investments today, while another may want to invest in the defense industry tomorrow. In the context of Europe’s geopolitical independence, there is a case to be made for that. However, that is a choice for politicians, not pension funds.

Risk of activist investing

The wishes of all action groups are mutually incompatible. Some want sustainable investments, others want investment in housing and armaments, while members with heavy workforces simply want a good scheme for far-flung retirement.

VVD MP Thierry Aartsen understands this. In June, he tabled a motion calling on pension funds to stop ‘activist’ investing. The focus should be on returns, according to Van Aartsen. The motion was passed by a majority. According to the VVD MP, the opinion of participants is ‘of secondary importance’, he told the FD.

Making policy on the waves of social indignation often goes wrong. Just look at the supplement affair and the Groningen natural gas file. Asking a pension fund to invest what is most wanted on that day is risky. It leads to yo-yo policies, and our generous pension reserve is too important for that.

That pension federation chairman Ger Jaarsma claims in the FD not to invest activistically is nice, but does not quite match the facts. After all, why ban oil and gas companies when the vast majority of citizens and companies need oil and gas for decades to come? Let pension funds concentrate on implementing the new pension system and otherwise focus mainly on fiduciary duty